EUR/USD - Overbought RSI, the Bulls look for IFO survey & preliminary PMIs

The sharp rally in the EUR/USD over the last one month pushed the daily RSI into the overbought territory. With technical indicators showing signs of exhaustion, the EUR bulls look at the German IFO survey and preliminary PMI readings for strength.

German IFO could beat estimates

German IFO due at 8 a.m. GMT is expected to show an uptick in the current assessment, business climate and expectations indices. All three indices could beat estimates, given the fading political uncertainty and strong economic data releases. The data released earlier this month showed the German current account surplus rose to a record high in March.

Meanwhile, Natixis analysts expect manufacturing PMI to increase to 56.8 (+0.1 point) and services PMI to remain stable at 56.4. The composite PMI should thus stand at 56.8 in May.

The common currency could rise to 1.13 levels if the German IFO and Eurozone preliminary PMIs beat estimates. On the other hand, a weaker-than-expected print would add credence to the overbought RSI and thus could yield a sharp pullback to sub-1.12 levels.

German GDP due at 6 a.m. GDP may not have a significant impact on the EUR pairs as the markets would be more interested to see how the forward looking indicators are performing.

Traders should also keep an eye on the EUR/GBP cross. Manchester Attack may see increase flows to Eurozone, thereby leading to an uptick in the EUR/GBP and EUR/USD pair.

EUR/USD Technical Levels

The spot traded around 1.1250 in Asia. A break above 1.1284 (161.8% Fib expansion of Jan low - Jan high - Feb low) would open doors for 1.1366 (Aug 2016 high) and 1.14 (zero levels).

On the lower side, breach of support at 1.12 (zero figure) would expose support at 1.0982 (100% Fib expansion of Jan low - Jan high - Feb low) and 1.0906 (March high).